Struggling mortgage lender Downey names CEO

NEW YORK, Sept 22 (Reuters) - Downey Financial Corp DSL.N, a southern California lender battered by losses on option adjustable-rate mortgages, on Monday named Charles Rinehart chief executive officer.

Rinehart, 61, is a former CEO of H.F. Ahmanson & Co, which sold itself to Washington Mutual Inc WM.N a decade ago. At Downey, he replaces interim chief executive Thomas Prince, who will remain senior executive vice president.

Option ARMs allowed borrowers to pay less than the interest and principal due each month. Many borrowers are defaulting on these loans, often finding themselves owing more than their homes are worth. Downey has been one of the largest U.S. option ARM providers, and lost $218.9 million in the second quarter.

In July, Downey said its board formed a special committee to explore options for the company, and retained Sandler O'Neill Partners LP as a financial adviser. It said it expects to enter a change of control agreement with Rinehart, a type of contract governing rights when a company is sold.

Shares of Downey closed Monday up 12 cents, or 4 percent, at $3.11. Their 52-week high is $60.99, last Sept. 24. (Reporting by Jonathan Stempel; Editing by Gary Hill)